United States District Court, E.D. California
HORISONS UNLIMITED and HORISONS UNLIMITED HEALTH CARE, Plaintiffs,
SANTA CRUZ-MONTEREY-MERCED MANAGED MEDICAL CARE COMMISSION d/b/a CENTRAL CALIFORNIA ALLIANCE FOR HEALTH and THE COUNTY OF MERCED, Defendants.
ORDER ON MOTIONS TO DISMISS, MOTION FOR SANCTIONS (Docs. 20, 23, and 32)
LAWRENCE J. O'NEILL, District Judge.
PRELIMINARY STATEMENT TO PARTIES AND COUNSEL
Judges in the Eastern District of California carry the heaviest caseload in the nation, and this Court is unable to devote inordinate time and resources to individual cases and matters. This Court cannot address all arguments, evidence and matters raised by parties and addresses only the arguments, evidence and matters necessary to reach the decision in this order given the shortage of district judges and staff. The parties and counsel are encouraged to contact the offices of United States Senators Feinstein and Boxer to address this Court's inability to accommodate the parties and this action. The parties are required to consider consent to a Magistrate Judge to conduct all further proceedings in that the Magistrate Judges' availability is far more realistic and accommodating to parties than that of U.S. District Judge Lawrence J. O'Neill who must prioritize criminal and older civil cases.
Plaintiffs Horisons Unlimited and Horisons Unlimited Health Care (collectively, "Horisons" or "Plaintiffs") bring this action for violations of the Sherman Act, 15 U.S.C. §§ 1, 2, 42 U.S.C. § 1983, and California antitrust and anti-discrimination law as well as for breach of contract and for mandamus against Defendants Santa Cruz-Monterey-Merced Managed Medical Care Commission d/b/a Central California Alliance for Health ("Alliance") and the County of Merced ("the County") (collectively, "Defendants"). Before the Court are the County and Alliance's motions to dismiss Plaintiffs' complaint for failure to state a claim pursuant to Fed.R.Civ.P. 12(b)(6) and lack of subject matter jurisdiction pursuant to Rule 12(b)(1) as well as the County's motion for sanctions pursuant to Fed.R.Civ.P. 11. For the reasons discussed below, the Court GRANTS in part the County's and Alliance's motions to dismiss Plaintiffs' complaint, DENIES the County's motion for sanctions, and ORDERS the joinder of Golden Valley Health Centers as a defendant in this case.
Medi-Cal was enacted as California's Medicaid program. Prior to January 1, 2014, individuals who qualified for Medi-Cal generally had income not exceeding 100% of the federal poverty level. As of December 2013, Merced County's Medi-Cal enrollment was approximately 80, 000 individuals. As of January 1, 2014, individuals with income not exceeding 138% of the federal poverty rate may qualify for Medi-Cal benefits. Medi-Cal enrollment in Merced is expected to increase by another 18, 000 individuals as a result.
Plaintiffs are California corporations licensed by the state to provide primary care services as certified Rural Health Clinics. Horisons is a non-denominational religious healthcare provider and offers pastoral services at its clinics. Horisons operates three clinics in Merced County, located in Los Banos, Livingston, and Gustine. Horisons has employed 75 to 80 employees and contractors, including physicians, physician's assistants, nurse practitioners, and dentists, to service their clinics. Plaintiffs' clinics have served Medi-Cal beneficiaries and the "working poor" who do not qualify for public assistance in Merced since 2004.
California's Department of Health Care Services ("DHCS") generally requires most Medi-Cal beneficiaries to be assigned to and enrolled in a Medi-Cal managed care plan unless one is unavailable where they reside. In 2008, the governing body of the County established Alliance as the sole Medi-Cal managed care plan for the county of Merced. All healthcare providers seeking to provide services to Medi-Cal beneficiaries in Merced are thus required to contract with Alliance, and all Medi-Cal eligible individuals in Merced are thus required to be members of Alliance to receive Medi-Cal benefits.
Horisons entered into a contract with Alliance effective January 1, 2011. The contract states that providers must be credentialed by Alliance in order to render healthcare services to Alliance members and outlines the credentialing process. Horisons alleges that Alliance's Peer Review and Credentialing Committee meets infrequently and can take up to six months to complete credentialing. The contract further states that providers with "clean" records who are new to Alliance are eligible for provisional credentialing subject to the recommendation and approval of Alliance officers.
Alliance refused to temporarily credential any of Horisons' providers. Horisons' providers are otherwise licensed and qualified. Horisons allowed its providers to render services to patients pending Alliance's completion of credentialing. Horisons alleges it did so in accordance with the Rural Health Center Policy and to meet patient needs.
As a result, on or around December 20, 2013, Alliance stopped new enrollments of Medi-Cal beneficiaries at Horisons and threatened to terminate Horisons' contract with Alliance. Alliance also refused to inspect a new Horisons clinic site and to credential a Horisons chiropractor. In addition, for the year preceding Horisons' filing of its complaint, Alliance has threatened to terminate Horisons' contract unless the annual number of visits for Horisons' patients average no more than 3.2. Horisons alleges that Merced County, including its patients, suffers from higher incidences of poverty, obesity, asthma, and diabetes than California generally and require more frequent visits to Horisons' clinics. Because of Horisons' threats, Horisons has not billed Alliance for a number of patient visits to prevent the average number of patient visits from exceeding 3.2.
Horisons' main competitor for Medi-Cal patients in Merced County is Golden Valley Health Centers ("Golden Valley"). The Deputy Chief Executive Officer of Golden Valley has been a member of Alliance's governing body at all relevant times. Horisons alleges that Alliance allows Golden Valley to use temporarily credentialed professional providers who are similarly situated to Horisons' professional providers without any adverse consequences to Golden Valley. Horisons further alleges that the County and Alliance conspired with Golden Valley to monopolize Medi-Cal managed healthcare services in Merced County through elimination of any competing managed care plan and of any competing healthcare provider.
Horisons alleges that it has lost and will lose millions of dollars due to Defendants' actions, including the loss of $350, 000 per month due to non-enrollment of new members, and is threatened with imminent bankruptcy. Horisons seeks injunctive relief, compensatory damages, attorney's fees, and a writ of mandamus.
B. Procedural History
On January 28, 2014, Horisons filed a complaint for antitrust violations, anti-discrimination violations, and breach of contract against Defendants and moved for a temporary restraining order ("TRO"). (Doc. 1). On January 29, 2014, this Court denied Horisons' motion for a TRO. (Doc. 10). The County filed a motion to dismiss Horisons' complaint pursuant to Fed.R.Civ.P. 12(b)(1) and 12(b)(6) on March 18, 2014. (Doc. 20). Alliance filed a motion to dismiss Horisons' complaint pursuant to Fed.R.Civ.P. 12(b)(1) and 12(b)(6) on March 20, 2014. (Doc. 23). Horisons filed an opposition to Defendants' motions on April 14, 2014 and the Defendants filed replies on April 21, 2014. (Docs. 26, 34, 35). The County filed a motion for sanctions against Horisons pursuant to Fed.R.Civ.P. 11 on April 17, 2014. (Doc. 32). Horisons filed an opposition on May 1, 2014, and the County filed a reply on May 7, 2014. (Docs. 37, 39).
On May 12, 2014, this Court ordered Defendants to file supplemental briefing on the statutory immunity defense they raised as to Horisons' Sherman Act claim. (Doc. 40). Defendants filed supplemental briefing on May 16, 2014, and Horisons filed supplemental briefing on May 22, 2014. (Docs. 43, 43, 44).
Motions to Dismiss
A. 12(b)(1) Lack of Subject Matter Jurisdiction
Defendants argue that this Court lacks subject matter jurisdiction over Horisons' first cause of action under the Sherman Act §§ 1 and 2.
1. Legal Standard
A motion to dismiss for lack of subject matter jurisdiction determines whether the plaintiff has a right to be in the particular federal court, whereas a motion to dismiss for failure to state a claim is an adjudication as to whether a cognizable legal claim has been stated. Trustees of Screen Actors Guild-Producers Pension & Health Plans v. NYCA, Inc., 572 F.3d 771, 775 (9th Cir. 2009) (quoting 5B Wright & Miller, Federal Practice and Procedure § 1350 (3d ed. 2004)). A federal court is a court of limited jurisdiction, and may adjudicate only those cases authorized by the Constitution and by Congress. Kokkonen v. Guardian Life Ins. Co., 511 U.S. 375, 377 (1994). Faced with a Rule 12(b)(1) motion, a plaintiff bears the burden of proving the existence of the court's subject matter jurisdiction. Thompson v. McCombe, 99 F.3d 352, 353 (9th Cir. 1996). A federal court is presumed to lack jurisdiction in a particular case unless the contrary affirmatively appears. Gen. Atomic Co. v. United Nuclear Corp., 655 F.2d 968, 968-69 (9th Cir. 1981).
"A motion to dismiss for lack of subject matter jurisdiction may either attack the allegations of the complaint or may be made as a speaking motion' attacking the existence of subject matter jurisdiction in fact." Thornhill Pub. Co., Inc. v. Gen. Tel. & Electronics Corp., 594 F.2d 730, 733 (9th Cir. 1979) (citing Land v. Dollar, 330 U.S. 731, 735 & n. 4 (1947); Mortensen v. First Fed. Sav. & Loan Ass'n, 549 F.2d 884, 890-892 (3rd Cir. 1977); Exchange Nat'l Bank v. Touche Ross & Co., 544 F.2d 1126, 1130-1131 (2nd Cir. 1976)). "In a facial attack, the challenger asserts that the allegations contained in a complaint are insufficient on their face to invoke federal jurisdiction." Safe Air for Everyone v. Meyer, 373 F.3d 1035, 1038 (9th Cir. 2004). "By contrast, in a factual attack, the challenger disputes the truth of the allegations that, by themselves, would otherwise invoke federal jurisdiction." Id.
"If the challenge to jurisdiction is a facial attack, i.e., the defendant contends that the allegations of jurisdiction contained in the complaint are insufficient on their face to demonstrate the existence of jurisdiction, the plaintiff is entitled to safeguards similar to those applicable when a Rule 12(b)(6) motion is made." Cervantez v. Sullivan, 719 F.Supp. 899, 903 (E.D. Cal. 1989), rev'd on other grounds, 963 F.2d 229 (9th Cir. 1992). "The factual allegations of the complaint are presumed to be true, and the motion is granted only if the plaintiff fails to allege an element necessary for subject matter jurisdiction." Id.
The County argues that this Court lacks subject matter jurisdiction over Horisons' Sherman Act claim because Horisons fails to allege the involvement of interstate commerce. Alliance states that it moves for dismissal pursuant to Fed.R.Civ.P. 12(b)(1) as well as 12(b)(6), but its briefing only argues that Horisons fails to state a claim as to each of its causes of action pursuant to Fed.R.Civ.P. 12(b)(6). Therefore, this Court construes Alliance's motion to dismiss as brought under Fed.R.Civ.P. 12(b)(6) only, and limits this Court's 12(b)(1) analysis to the County's arguments.
Horisons alleges that the conduct of the County and Alliance affects interstate commerce because it "limits and/or denies access to crucial health services for persons moving through interstate commerce who pass through or relocate to Merced County[, ] frustrates the movement of licensed healthcare professionals for professional experience and training through interstate commerce[, ] frustrates the establishment of rural health services that the Rural Health Clinics Act intended to foster, and limits the interstate movement of goods, services and financial transactions from, into and out of the County of Merced that certified Rural Health Clinics and other primary care clinics require." (Doc. 1 pp. 12-13). The County argues that "[a]ll of Plaintiffs' business is alleged to have occurred in Merced County, " and that "[n]o facts are alleged which occurred in, or affect, interstate or international commerce." (Doc. 20 p. 6). Specifically, the County contends that Horisons' above allegations are "conclusory" and "fail to demonstrate a plausible substantial affect[sic] on interstate commerce." Id. at p. 7.
"For there to be a Sherman Act violation, the defendant's business activities must be in restraint of trade or commerce among the several States.'" United States v. ORS, Inc., 997 F.2d 628, 629 (9th Cir. 1993) (quoting 15 U.S.C. § 1). "This requisite relationship to interstate trade or commerce is not only an element of the alleged antitrust offense, but also a necessary jurisdictional requirement." Id. (citing McLain v. Real Estate Bd. of New Orleans, 444 U.S. 232, 242 (1980). However, "[i]t is settled that the [Sherman] Act encompasses far more than restraints on trade that are motivated by a desire to limit interstate commerce or that have their sole impact on interstate commerce." Hosp. Bldg. Co. v. Trustees of Rex Hosp., 425 U.S. 738, 743 (1976). "[W]holly local business restraints can produce the effects condemned by the Sherman Act.'" Id. (quoting United States v. Employing Plasterers Ass'n, 347 U.S. 186, 189 (1954). Anti-competitive conduct may covered by the Sherman Act even if its impact on interstate commerce is "indirect" or "fortuitous." Id. at 744. To establish federal jurisdiction in this case, Horisons' allegations must show Defendants' conduct "as a matter of practical economics' to have a not insubstantial effect on the interstate commerce involved." McLain, 444 U.S. at 246 (quoting Rex Hospital Trustees, 425 U.S. at 745).
Here, Horisons alleges that, if Defendants' monopoly continues and forces Horisons to cease operations, Horisons' purchases of out-of-state supplies and services and other interstate financial transactions as well as its recruitment of out-of-state professionals to service and receive training at its clinics would cease as well. Horisons further alleges that it would no longer be able to serve nonresident patients or patients who relocate to Merced County from another state. The Supreme Court has found similar allegations as sufficient to establish a "substantial effect" on interstate commerce under the Sherman Act. See, Trustees of Rex Hosp., 425 U.S. at 744 ("The complaint, fairly read, alleges that if respondents and their coconspirators were to succeed in blocking petitioner's planned expansion, petitioner's purchases of out-of-state medicines and supplies as well as its revenues from out-of-state insurance companies would be thousands and perhaps hundreds of thousands of dollars less than they would otherwise be."); Summit Health, Ltd. v. Pinhas, 500 U.S. 322, 329-330 (1991) (It seems clear, however, that these services are regularly performed for out-of-state patients and generate revenues from out-of-state sources."). Moreover, the bankruptcy of Horisons as a Medicaid provider through Medi-Cal necessarily would affect commerce. See, Summit Health, 500 U.S. at 327 ("The provision of ophthalmological services affects interstate commerce because both physicians and hospitals serve nonresident patients and receive reimbursement through Medicare payments."); United States v. Girod, 646 F.3d 304, 315 (5th Cir. 2011) ("Medicaid  is a federally funded program that indisputably affects interstate commerce.").
Further, as the Ninth Circuit has recognized, the Supreme Court "somewhat liberalized" the Sherman Act interstate commerce test in Summit Health. Tice v. Hoff, 29 F.3d 634 (9th Cir. 1994). There, the Supreme Court instructed that "[t]he competitive significance of [plaintiff's] exclusion from the market must be measured, not just by a particularized evaluation of his own [business, ] but rather, by a general evaluation of the impact of the restraint on other participants and potential participants in the market from which he has been excluded." Summit Health, 500 U.S. at 332. "For if a violation of the Sherman Act occurred, the case is necessarily more significant than the fate of just one merchant whose business is so small that his destruction makes little difference to the economy.'" Id. (quoting Klor's, Inc. v. Broadway-Hale Stores, Inc., 359 U.S. 207, 213 (1959). Here, the alleged monopoly and conspiracy to monopolize the Medi-Cal market in Merced County affect not only Horisons but also any potential participant in the Medi-Cal managed healthcare plan market and in the Medi-Cal healthcare provider market in Merced County. As the Supreme Court stated, "[i]n cases involving horizontal agreements to fix prices or allocate territories within a single State, we have based jurisdiction on a general conclusion that the defendants' agreement almost surely' had a marketwide impact and therefore an effect on interstate commerce." Summit Health, 500 U.S. at 331 (citing Burke v. Ford, 389 U.S. 320, 322 (1967)). Therefore, the exclusion of any and all such participants from the Medi-Cal market in Merced County affects interstate commerce.
Because Horisons sufficiently alleges that Defendants' conduct "as a matter of practical economics" has a "not insubstantial effect on the interstate commerce, " the County's motion to dismiss Horisons' first cause of action for lack of subject matter jurisdiction pursuant to Fed.R.Civ.P. 12(b)(1) is DENIED. Rex Hospital Trustees, 425 U.S. at 745; McLain, 444 U.S. at 246.
B. 12(b)(6) Failure to State a Claim
Horisons brings federal and state antitrust claims against both Defendants and additional state claims against Alliance. Specifically, Horisons contends that Defendants violated the Sherman Act and California's Cartwright Act in the first and third causes of action respectively. Horisons also contends that Alliance deprived Horisons of its constitutional rights in violation of 42 U.S.C. § 1983, discriminated against Horisons in violation of California's Unruh Civil Rights Act, and breached Horisons' contract with Alliance. Finally, Horisons seeks a writ of mandamus against Alliance under Cal. Code Civ. P. § 1085.
Defendants argue that Horisons fails to state a claim for which relief can be granted as to Horisons' first and third causes of action against them for antitrust violations. Alliance also argues that Horisons fails to state a claim for which relief can be granted as to the second, fourth, fifth, and sixth causes of action Horisons asserts against Alliance.
1. Legal Standard
A motion to dismiss pursuant to Fed.R.Civ.P. 12(b)(6) is a challenge to the sufficiency of the allegations set forth in the complaint. A dismissal under Rule 12(b)(6) is proper where there is either a "lack of a cognizable legal theory" or "the absence of sufficient facts alleged under a cognizable legal theory." Balisteri v. Pacifica Police Dept., 901 F.2d 696, 699 (9th Cir. 1990). In considering a motion to dismiss for failure to state a claim, the court generally accepts as true the allegations in the complaint, construes the pleading in the light most favorable to the party opposing the motion, and resolves all doubts in the pleader's favor. Sprewell v. Golden State Warriors, 266 F.3d 979, 988 (9th Cir. 2001).
To survive a Fed.R.Civ.P. 12(b)(6) motion to dismiss, the plaintiff must allege "enough facts to state a claim to relief that is plausible on its face." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). "A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Ashcroft v. Iqbal, 129 S.Ct. 1937, 1949 (2009). "The plausibility standard is not akin to a probability requirement, ' but it asks for more than a sheer possibility that a defendant has acted unlawfully." Id. (citing Twombly, 550 U.S. at 556). "Where a complaint pleads facts that are merely consistent with a defendant's liability, it stops short of the line between possibility and plausibility for entitlement to relief" Id. (citing Twombly, 550 U.S. at 557).
"While a complaint attacked by a Rule 12(b)(6) motion to dismiss does not need detailed factual allegations, a plaintiff's obligation to provide the grounds' of his entitlement to relief' requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do." Twombly, 550 U.S. at 555 (internal citations omitted). Thus, "bare assertions... amount[ing] to nothing more than a formulaic recitation of the elements... are not entitled to be assumed true." Iqbal, 129 S.Ct. at 1951. A court is "free to ignore legal conclusions, unsupported conclusions, unwarranted inferences and sweeping legal conclusions cast in the form of factual allegations." Farm Credit Services v. American State Bank, 339 F.3d 764, 767 (8th Cir. 2003) (citation omitted).
Moreover, a court "will dismiss any claim that, even when construed in the light most favorable to plaintiff, fails to plead sufficiently all required elements of a cause of action." Student Loan Marketing Ass'n v. Hanes, 181 F.R.D. 629, 634 (S.D. Cal. 1998). In practice, "a complaint... must contain either direct or inferential allegations respecting all the material elements necessary to sustain recovery under some viable legal theory." Twombly, 550 U.S. at 562 (quoting Car Carriers, Inc. v. Ford Motor Co., 745 F.2d 1101, 1106 (7th Cir. 1984)).
To the extent that the pleadings can be cured by the allegation of additional facts, the plaintiff should be afforded leave to amend. Cook, Perkiss and Liehe, Inc. v. Northern California Collection Serv. Inc., ...